| Subject: FT/E Timor: Economists
search for the blueprint Financial
Times Tuesday November 16 1999
EAST TIMOR: Economists search for the blueprint
Economists must map out a plan for building an economy and
its institutional infrastructure from scratch, report Ted Bardacke and Shawn Donnan
Only in academic exercises has the assignment for
development experts been as wide open as it has for a team of planners camped out on the
floor of the gutted governor's office in Dili, East Timor's capital.
Their task: build an economy, and all the necessary
institutional infrastructure to manage it, from scratch. Indonesian troops and
anti-independence militia followed a scorched-earth policy when they pulled out from the
territory earlier this year, destroying public buildings, looting banks and taking most of
the civil service with them.
In doing so they destroyed studies by exiled East Timorese
economists and others who, when it appeared in early 1998 that Indonesia might let go of
the territory, began designing what an independent East Timorese economy might look like.
Now the task of rebuilding is much greater. But so are the
international resources available. This increases the risk that East Timor will turn into
a poor, aid-dependent nation for decades.
When this week experts from the World Bank and the
International Monetary Fund and East Timorese leaders unveil preliminary plans for basic
government institutions, they will be constrained by questions of geography.
Is East Timor part of south-east Asia, with natural trade
ties to Indonesia and the countries that supported its occupation by Jakarta for two
decades? Or is it part of the South Pacific, with which it has ethnic and religious ties
but which is poor?
Comparisons with other strife-torn countries are also being
made.
East Timor is wracked by a legacy of internal violence,
like Rwanda. It will have all the trappings of a national state, without being one, like
Gaza and the West Bank. It will be run for the next few years by UN agencies and troops,
like Cambodia earlier this decade, while the sometimes difficult relationship between
armed local leaders and aid officials is likened to the Balkans.
Mission leader Klaus Rohland is the World Bank country
director for Papua New Guinea and the Pacific islands, while the top IMF official in the
team is Luis Valdivieso, a specialist in "post-conflict" economies with previous
assignments in Armenia and the Balkans.
East Timor leaders want to use the Portuguese currency, the
escudo, in the territory and Portugal says it will print the notes and initially pay for
the salaries of civil servants. While such gestures are welcomed by international
officials there are reservations about the use of such an obscure currency (which will in
any case disappear with the full introduction of the euro in 2002).
Meanwhile, officials want to prevent a "boom
economy" fuelled by temporary services for expatriate international aid officials.
East Timorese leaders already complain that free spending
by westerners has caused inflation in Dili's markets. "We want to give a measured
dose of support. Too much money too quickly can ruin the social fabric and structure of a
country as we saw elsewhere in the 1970s and 1980s," said Mr Rohland.
"One of the things they're going to have to be very
careful of is that they don't build up an infrastructure and police force and bureaucracy
and so on that they can't support," said Bob Lowry, an Australian academic who is a
leading expert on East Timor.
Joao Saldanha, an East Timorese economist who is part of
the mission, says this should not be too much of a problem compared with the system
Indonesia created. Bloated by an estimated 5,000 "ghosts" (non-existent workers
whose wages are collected by someone else), the 33,000-strong Indonesian civil service was
renowned for its corruption and a drain on the Timorese economy, according to Mr Saldanha.
The new civil service, he said, is likely to be a third its size with a budget around $64m
a year compared with the $116m Indonesia is thought to have spent.
One windfall that is not likely to arrive soon is from oil.
The UN and then independent East Timor will take over Indonesia's role as signatory of the
1995 Timor Gap Treaty with Australia and some see future oil and natural gas royalties
from the co-operation zone created by the treaty as a potentially significant revenue
source.
The $1bn Bayu-Undan project, led by Phillips Petroleum and
with probable reserves of 325m barrels of condensate and natural gas reserves of about
3,400bn cubic feet, could be ready for production by 2004. But Timorese economists say
there are still too many questions for it to prove a reliable source of revenue for now
and they have begun treating any possible oil or gas revenues as a potential bonus and
nothing more.
"We are not intending to develop our economy on the
basis of the Timor Gap," says Mr Saldanha.
Instead, East Timor's initial economic focus is likely to
be on agriculture, with self-sufficiency in rice and increasing the territory's $20m
annual coffee exports high on the list. Gold, marble and other mineral resources may turn
out to be a big revenue source. There are also plans to develop an "eco-tourism"
industry.
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